Message-ID: <11217364.1075851000336.JavaMail.evans@thyme> Date: Thu, 21 Jun 2001 09:39:00 -0700 (PDT) From: steve.walton@enron.com To: christi.nicolay@enron.com Subject: Re: INTERIM MODEL TALKING POINTS Cc: james.steffes@enron.com, richard.shapiro@enron.com, sarah.novosel@enron.com, steven.kean@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: james.steffes@enron.com, richard.shapiro@enron.com, sarah.novosel@enron.com, steven.kean@enron.com X-From: Steve Walton X-To: Christi L Nicolay X-cc: James D Steffes, Richard Shapiro, Sarah Novosel, Steven J Kean X-bcc: X-Folder: \Steven_Kean_Oct2001_2\Notes Folders\Attachments X-Origin: KEAN-S X-FileName: skean.nsf Christi, As I have been thinking about this problem, my opposition to a standard model is declining, partly out of frustration with the slow progress being made. I think, however, that we ought to think about the potential consequences of recommending a standard model. If we simply endorse PJM, then we may inadvertently get its warts as well -- no secondary transmission market, ICAP market, etc. I think we are considering the same thing approach as was reported by Charles Yeung's in his note on Tuesday's Inter-RTO Coordination (Seams) Conference: "Harvey Reed, Constellation Power, suggested that FERC impose a standard tariff for all RTOs to work from that did not restrict RTOs from filing different proposals, but would limit their ability to diverge from a single market model." In addition to the standard model, there needs to be a deadline for either filing the tariff or for filing the standard tariff. Without a "feet to the fire" feature, nothing the grand stall will continue. In arguing for a standard model, the PJM system could be the core of a proposal but we should specific modifications to address our concerns. On the transmission rights issue, for instance, a simple "don't allocate" solution won't work. The lack of the secondary market for NY TCCs or PJM FTRs goes both to the lack of information and to the way the rights are defined. If as Harvey Reed suggests, RTOs can submit alternative approaches, at least there will be pressure to get moving. I have not discussed this idea with West Power. It then occurred to me that FERC is unlikely to impose a standard tariff without a rulemaking proceeding. Whether they could act by fiat or not is a moot point, since I doubt that they would do so without creating a record. There are two possible down sides to a rule making. (1) The outcome of a rulemaking is something of a crap shoot. The incumbents have a pretty good record in the past, of coming out of rulemakings with plenty of goodies such as the native load exemption in Order No. 888. There is a also a distinct risk that PJM's ICAP or transmission right allocation process is given blessed status, which will make revision of them later to be a huge uphill battle. (2) The other consequence of a rulemaking its effect on current RTO discussions. The best outcome is that the uncertainty of the rulemaking creates an urgency to get a proposal filed before a new FERC rule cuts off options from a new the standard for review. The uncertainty prior to the issuance of Order No. 888 in fact had that effect in the West. On the other hand it can mean that nothing happens until the new rule is issued. This also happened prior to Order No. 888, with a number of companies sitting on their hands, using the time delay to protect existing positions, while whipping up State regulators' fears of jurisdictional shift as necessary to boost their own position. These are only own views. I have not had a chance to speak with West Power this week, but I will approach Tim when I am in Portland again next week. Steve Christi L Nicolay 06/19/2001 04:21 PM To: Steve Walton/HOU/ECT@ECT cc: James D Steffes/NA/Enron@ENRON, Richard Shapiro/NA/Enron@Enron, Sarah Novosel/Corp/Enron@ENRON, Steven J Kean/NA/Enron@Enron Subject: Re: INTERIM MODEL TALKING POINTS Can we focus the PJM language as an interim fix toward the East (while maybe the threat of PJM in the West will make the West RTOs act quickly and adopt everything that Steve W. has been advocating). Also, I agree with the ISO being required to provide much greater information on where the congestion occurs. While the allocation of FTRs is a problem and the idiosyncratic nature is also a problem, it is because the traders do not have access to all the information. They have told me that if they had access to all the information about congestion from the past several years, they could essentially build a model for anticipated congestion that could trade "above" the underlying FTRs as financial instruments. Steve Walton 06/18/2001 03:30 PM To: James D Steffes/NA/Enron@ENRON cc: Christi L Nicolay/HOU/ECT@ECT, Richard Shapiro/NA/Enron@Enron, Sarah Novosel/Corp/Enron@ENRON, Steven J Kean/NA/Enron@Enron Subject: Re: INTERIM MODEL TALKING POINTS Jim, I have added my comments to your draft. My concern with the "Adopt PJM" approach is that it will become a fiat accompli with regard to congestion management. and the nature of future transmission rights. Once adopted as the standard, nothing else will be accepted and any move to a decentralized approach is highly unlikely. Unlike the British, we have a hard time changing horses because of our multi-jurisdictional Federal system of government. The PJM's lack of a secondary FTR market is more that just an allocation problem. If that were true, they New York would have a secondary market -- none exists there either. The unpredictability of prices is probably the biggest problem since no one knows how to value FTRs or TCCs. I think the nature of instrument is also not particularly helpful. During our discussion of Seabron Adamson's last draft, I maintained that a centralized unit commitment process didn't fit the Pacific Northwest (PNW) with its pattern of trading to achieve coordination between hydroelectric and thermoelectric generation. You asked me to provide more detail hydro-thermal operation. I am including a paper that covers the nature of PNW operations and contracting with observations about the nature of unit commitment. Given other work and travel, it has taken some time to complete the paper and its examples. I hope this will help to explain why I am hesitant to endorse a centralize unit commitment implementation. Steve James D Steffes@ENRON 06/18/2001 01:48 PM To: Steven J Kean/NA/Enron@Enron, Richard Shapiro/NA/Enron@Enron, Christi L Nicolay/HOU/ECT@ECT, Sarah Novosel/Corp/Enron@ENRON, Steve Walton/HOU/ECT cc: Subject: INTERIM MODEL TALKING POINTS Here is the draft of an Interim step for Enron to give to Lay. Please give me your comments. This is CONFIDENTIAL and should not be shared outside the company. Jim